Want to Withdraw Your CPF? Read This First.

23 December 2021

When you hit the age of 55, you’re probably looking forward to withdrawing a lump sum from your CPF. And that’s entirely understandable. After all, chances are you’ve worked 3 decades or more by that time, diligently squirrelling away money into your CPF account. So, of course, you’ll be itching to get a hold of those funds.

If you’re reaching this milestone (or already have), then congratulations to you!

However, there’s one thing you should keep in mind: fight that urge to withdraw the money on your 55th birthday, or at least until you’ve read this article and given us the chance to make our case for delayed gratification.

Still with us? Great, let’s start with 2 questions you should ask yourself before withdrawing your CPF money.

First ask yourself: "Do I need to spend my CPF money now?"

Do you have a pressing need for cash? For example, your child might be starting their overseas university education soon, requiring hefty tuition and living expenses. Or you may need to purchase a car because your job now requires you to drive. These are big-ticket items where you justifiably need a large cash injection.

But first, you should hit the pause button and see if you can find the funds from other sources.

Perhaps you have a $30,000 SGD rainy day fund in your bank’s regular savings account. You may also happen to have $30,000 SGD excess in combined savings in your CPF Ordinary Account (OA) and Special Account (SA) after your Full Retirement Sum has been transferred to your Retirement Account (RA).

It makes sense to spend the money in your bank account first and designate your OA and SA savings as your new rainy day fund. That’s because this money will earn a much higher interest rate and is just as liquid as your bank account money after you turn 55.

In the case of paying for education, you can consider study loans that are interest-free during the course of study and allow a lump-sum payment upon graduation. That way, you can leave your CPF money to generate some interest earnings and then withdraw to pay off the loan only upon graduation in a few years’ time.

Then ask yourself: "If I don’t need to spend my CPF money, where should I park it after withdrawal?" 

If you don’t intend to spend the CPF money you withdraw, you have to find somewhere to park it where it’ll earn more than the CPF interest.

Remember, your CPF money is earning 6% on the first $30,000 SGD and 5% on the next $30,000 SGD of the combined savings across your RA, OA, SA, and MediSave Account (MA) respectively.

Say you have no intention of withdrawing from your RA because you want to lock in a higher CPF LIFE payout. Well, the base interest of your SA and OA stands at 4% and 2.5% respectively. You’ll be hard pressed to find financial products with the same risk profile – essentially risk free – that offer similar interest rates.

Here’s how $100,000 SGD grows when you leave it in CPF:

Assume you have put aside your Full Retirement Sum in the RA and have $100,000 SGD in your OA and $100,000 SGD in your SA. In 5 years’ time, that money will grow to $113,141 SGD and $121,665 SGD respectively.

And here’s how it compares to depositing $100,000 SGD in your bank account:

Leaving $100,000 in your regular bank account for 5 years will give you a grand total of about $100,250 SGD. What about fixed deposits? It’s a slightly better sum of about $105,100.

Check out the graph below to see the stark difference in returns over a 10 year period when saving in CPF vs bank accounts and fixed deposits.

Total savings by age - savings in a bank account versus fixed deposits (SGD)

To beat these returns, you’ll probably have to turn to instruments like stocks or higher-risk unit trusts. But age 55 is when most people are gradually adjusting their portfolio towards stability instead of injecting more volatility. You should seriously consider whether withdrawing your CPF and putting it into high-risk instruments is what you want to do so close to retirement.

Our suggestion: Consider withdrawing your CPF over time instead of in a lump sum

Of course, you don’t have to leave your money in CPF indefinitely. It’s no fun to just admire your burgeoning CPF statement without being able to enjoy some of the fruits of your labour.

You can choose to draw down your CPF money over time instead of doing a lump sum withdrawal. That way, you get to supplement your retirement income periodically while still benefiting from CPF interest rates.

Here are 3 ways you can do so:

Withdraw your CPF only when you need to spend it

If you find yourself in need of a lump sum, consider withdrawing only the amount you need to spend. For instance, if you want to spend $30,000 SGD on home renovations, withdraw that amount and leave the rest of the funds in your CPF accounts to accumulate interest.

Withdraw a fixed amount of our CPF periodically

If all you want is a little boost to your spending power, you can withdraw a fixed amount every month/quarter/half a year. Withdrawing eligible funds when you’re 55 and above is fast and simple so you don’t have to worry about being unable to access your money in a timely fashion.

Withdraw only the interest generated on your CPF

If you have strong alternate sources of income during retirement, you can consider withdrawing only the interest generated. That way, you retain all of your principal to continue generating interest without depleting your CPF savings.

Remember, CPF is just one part of your retirement strategy

CPF is there to help you have enough income during your golden years. And so you should choose the pace of withdrawal that will best provide a comfortable, decades-long retirement.

Your monetary sources will include your other investments, CPF LIFE when it kicks in at age 65, and perhaps your salary if you choose to continue working at a reduced capacity. Need a bit of help figuring this all out? Check out our financial planning tool in the StashAway app to visualise what your income streams could look like at retirement.

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